Entering the US Market: IP Design Comes Before Technology

-Legal column by Son Dong-hoo, Foreign Attorney (US) at Daeryun LLC (limited)

The US market entry of domestic healthcare companies—biosimilars, digital healthcare, and more—is becoming active. In this process, the first challenge companies face is IP (intellectual property) management rather than technology development itself. Even technology verified domestically is placed under entirely different evaluation standards in the US: for bio companies, securing follow-on patents and responding to the 'Patent Dance'; for digital healthcare companies, organizing medical data and software license rights; and for both industries, overhauling the IP management system between the Korean headquarters and the US local corporation often trips them up. This is why cases of receiving a competitor's Cease & Desist Letter for delaying patent maintenance, or being tripped up at the investment due diligence stage, continue steadily.

To reduce such risks, an FTO (Freedom To Operate) analysis at the early development stage should be the starting point. If you check whether you infringe others' patents only after the product is substantially developed, even if you discover a problem it is difficult to reverse the design itself. This means that rather than looking only at whether a patent can be obtained, one must first review "can I do business with this technology?" at the development launch point.

In the bio field, preparing the follow-on patent strategy and whether to participate in the Patent Dance as a single set is key. Follow-on patents such as formulation changes or indication expansion are a market defense means for the original developer and, from the biosimilar company's standpoint, also a barrier to overcome. On top of this, the Patent Dance procedure set by the US Biologics Price Competition and Innovation Act (BPCIA) has no legal compulsion. This is a principle established through the 2017 Sandoz v. Amgen ruling, and depending on whether one participates, the timing of the lawsuit's commencement and the scope of the target patents can vary. In particular, a biosimilar company must decide within 20 days after its licensing application (aBLA) is accepted whether to begin the exchange of patent materials. For this reason, a company that has predetermined its litigation strategy and whether to participate in the Patent Dance before the licensing application, versus a company that responds after the application, can show a considerable difference in subsequent bargaining power and dispute response.

In the digital healthcare domain, the key task is to organize the grounds for using medical data and the software license contract as separate documents from the early business stage. Investment due diligence comes in without notice, and if at that point the rights relationships for these two are unclear, contract terms change unfavorably or the process itself is delayed. Starting to piece together materials only after receiving a due diligence request means starting already having ceded the initiative in negotiations.

Organizing rights between the headquarters and the local corporation cannot be omitted either. Since many structures conduct R&D in Korea and commercialization through the US corporation, cases where it is unclear which side holds the core patents and under what terms the license is granted are not few. If the attribution of rights to deliverables under a Joint Development Agreement (JDA) is not clarified in contract form, one easily ends up in a situation of having to re-organize the rights relationships from scratch at the investment negotiation table, even before discussing business terms.

Ultimately, the common denominator of all this preparation is one. Rather than cleaning up after a problem erupts, it is to systematically manage patents, contracts, and R&D records from the development launch point, creating a state in which one can respond immediately to investment due diligence at any time. In actual investment negotiations, what an investor checks first is not the number of patents but whether the attribution of rights is clear and whether there is any possibility of infringing a third party's rights. In the US market, IP is no longer merely a defensive means to protect technology. It has become a prerequisite necessary to attract investment and expand business. Only companies that embrace IP design as part of their development strategy can open the door to the US market on top of that prerequisite.

Reporter Lee Dong-oh (canon35@mt.co.kr)

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